Don’t Join The Bearish US Dollar Bandwagon, MUFG warns

The dollar may have reached its top levels in global markets, according to MUFG’s foreign exchange strategists, but it is risky to predict that it will continue to decline, particularly if the world’s risk appetite worsens.

Dollar Oversold Following Sharp Reduction

The bank observes that the Bloomberg US dollar index’s overall negative momentum is at its most intense level since 2004. Although selling may continue in the very near future, historical analysis points to a high likelihood that the US dollar will strengthen over the next two months.

Global Risk Appetite is Precipitous

Global risk trends will be crucial, and MUFG warns of serious dangers posed by the spread of the Chinese coronavirus, which has resulted in a record number of daily illnesses, more lockdowns, and demonstrations in key cities, particularly Shanghai.

There is a significant chance that this may cause investor sentiment to broadly deteriorate, according to MUFG. The bank also believes that the S&P 500 index is susceptible to more losses, which would increase a general aversion to risk.

It acknowledges a significant risk element around the upcoming US consumer price inflation data scheduled on December 13th, although anticipating that Fed rhetoric alone won’t lead to a significant change in market pricing.

“A greater than predicted CPI would probably compel another reconsideration of the terminal rate, which would induce a more significant appreciation of the currency,” the article continues.